It’s been a tough year for investors in Empire State Realty Trust, and things will change soon.
Activist investor Bruce Schanzer Erez Asset Management has acquired a 5.8% stake in ESRT, which owns the Empire State Building as well as several office, retail and multifamily properties in Manhattan and Brooklyn, according to a Securities and Exchange Commission filing.
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Empire State Building
ESRT, whose shares are traded on the New York Stock Exchange, has lost about a third of its value this year. A longtime cash cow, the Empire State Building’s observation deck, has struggled to retain visitors amid competition.
The two Erez entities announced that they paid a combined $43M on October 1 for a 5.8% stake in ESRT. Schanzer believes ESRT stock is “undervalued and represents an attractive investment opportunity,” according to the filing.
Shares of ESRT rose 4.7% in Tuesday trading following Schanzer’s stock disclosure.
Schanzer was CEO of shopping center REIT Cedar Realty Trust in Long Island for 11 years before founding Erez Asset Management in 2022. The company takes equity stakes in REITs and pushes management to make changes to increase shareholder value.
Erez has approached ESRT leaders “about capital allocation, business management and operations, and strategy and planning [ESRT]including a potential strategic review of some or all of the Issuer’s assets,” the filing states.
Schanzer declined to comment beyond the filing and confirmed that he acquired a 5.8% stake. An ESRT spokesman did not immediately respond Bisnowrequest for comments.
Empire State Realty Trust is led by chairman and CEO Anthony Malkin, the third generation of the Malkin family that has owned the Empire State Building since 1961.
The REIT owns 7.5M SF of NYC office space, 800K SF of retail concentrated in Williamsburg and three apartment buildings totaling 743 units. But its performance is largely tied to its signature assets.
ESRT wrote down the value of the Empire State Building observation deck by $166M in the second quarter in a slow summer with low profits. The net operating income of these assets decreased from $24M to $12.4M annually.
The REIT’s share price fell 14% on the day of the disclosure and has continued to decline since before the Erez purchase.
The real estate portfolio, which has struggled during the pandemic, has started to replenish, with occupancy increasing to 89.4% from 88.2% three months earlier.
It remains to be seen what changes Schanzer pushes for in the ESRT in the midst of a resurgent year for the city’s real estate market. Retail occupancy in the main corridor is at a 10-year high, according to JLL, office rents are rising, and vacancies in the city’s rental market are less than 2%.
In another Erez target, made in the UMH REIT house, Schanzer has been agitating for a shake-up board for months. A week ago, Erez launched a website called SaveUMH.com, with a presentation titled “Right Horse, Wrong Jockey.”
“UMH owns a very attractive portfolio in one of the most durable asset classes in real estate; these assets have grown exponentially over the past 20 years, none of which has been reflected in stock price appreciation,” Schanzer wrote in a LinkedIn post. “The problem has never been the horse. It’s been two decades of mismanagement with a board that provides inadequate oversight. The shareholders deserve better.”